Ur Home International (Kenya) Limited v Commissioner of Domestic Taxes (Tribunal Appeal E350 of 2024) [2025] KETAT 71 (KLR) (31 January 2025) (Judgment)

Kenya Law

Automated Summary

Key Facts

Ur Home International (Kenya) Limited, a company manufacturing baby diapers, challenged tax assessments by the Commissioner of Domestic Taxes for the period 2018–2023. The assessments included Corporation Tax, VAT, PAYE, and WHT. The Appellant objected to the assessments, arguing errors in calculations, failure to acknowledge evidence (invoices, reconciliations, and capital allowances for machinery used in washing powder and toilet paper production), and incorrect application of input-output analysis. The Tribunal found the Appellant failed to discharge its burden of proof by not providing verifiable bank statements to confirm sales and payments. Key upheld assessments included undeclared sales invoices totaling Kshs. 54,245,518 (2019–2021) and Kshs. 395,765,544.77 (2023), while unsupported purchase assessments were set aside. The Tribunal also directed recalculations of Corporation Tax and VAT assessments using corrected diaper weights and washing powder pricing.

Tax Type

Corporation Tax, Value Added Tax (VAT), Pay As You Earn (PAYE), and Withholding Tax (WHT)

Issues

  • Whether the Respondent was justified in issuing VAT assessments for the periods 2019, 2020, 2021, 2022, and 2023.
  • Whether the Respondent was justified in issuing Corporation Tax assessments for the years 2019, 2020, 2021, and 2022.

Tax Years

  • 2019
  • 2020
  • 2023
  • 2022
  • 2018
  • 2021

Holdings

  • The Value Added Tax (VAT) assessments on unsupported purchases in the years 2019, 2020 and 2021 be and are hereby set aside.
  • The Value Added Tax (VAT) assessments on the input-output analysis variances in the years 2019, 2020, 21 and 2022 be recalculated by applying the correct weights of diapers and the correct price per kilogram of washing powder.
  • The Value Added Tax (VAT) assessments on undeclared sales invoices of Kshs. 54,245,517.79 in the years 2019, 2020 and 2021 and Kshs. 395,765,544.77 in the year 2023 be and are hereby upheld.
  • The Corporation tax assessments on undeclared sales invoices of Kshs. 54,245,517.79 in the years 2019, 2020 and 2021 be and are hereby upheld.
  • The Corporation tax assessments on unsupported purchases in the years 2019, 2020 and 2021 be and are hereby set aside.
  • The Corporation tax assessments on the input-output analysis variances in the years 2019, 2020, 2021 and 2022 be hereby recalculated by applying the correct weights of diapers and the correct price per kilogram of washing powder.
  • The Corporation tax assessment on the disallowed capital allowances for the year 2019 be and is hereby set aside.

Remedies

  • The Tribunal ordered the Corporation tax assessments on input-output analysis variances for 2019–2022 to be recalculated by applying the correct diaper weights and washing powder price per kilogram as presented by the Appellant.
  • The Tribunal upheld the Corporation tax assessments on undeclared sales invoices of Kshs. 54,245,517.79 (2019–2021) and Kshs. 395,765,544.77 (2023). The Appellant failed to prove these invoices did not pertain to its sales.
  • The Tribunal ordered that neither party would be awarded costs; each is to bear its own expenses incurred during the appeal proceedings.
  • The Tribunal directed the Respondent to recalculate VAT assessments on input-output analysis variances for 2019–2022 by applying the correct diaper weights and washing powder price per kilogram as presented by the Appellant.
  • The Tribunal set aside the Corporation tax assessment on disallowed capital allowances for the year 2019. The Appellant demonstrated sufficient evidence of machinery disposal, discharging its burden of proof.
  • The Tribunal upheld the VAT assessments on undeclared sales invoices of Kshs. 54,245,517.79 (2019–2021) and Kshs. 395,765,544.77 (2023). The Appellant did not provide bank statements to verify the Respondent's findings.
  • The Tribunal set aside the VAT assessments on unsupported purchases of Kshs. 387,742,811 for the years 2019–2021. The Appellant provided invoices, delivery notes, and cheques to substantiate these purchases.
  • The Tribunal set aside the Corporation tax assessments on unsupported purchases for the years 2019, 2020, and 2021. The Appellant provided sufficient documentation to support these purchases, leading to the disallowance of the Respondent's assessment.
  • The Respondent was directed to recompute VAT assessments based on the Tribunal's findings within 30 days of the judgment's delivery. This includes adjustments to Corporation tax and VAT calculations as outlined.

Tax Issue Category

  • Deductibility / Allowances
  • Other
  • Input Vs. Output Vat

Legal Principles

  • The Tribunal applied the burden of proof principle under Sections 56(1) of the Tax Procedures Act and 30 of the Tax Appeals Tribunal Act, requiring the Appellant to substantiate its claims with verifiable documentation. The Appellant's failure to present bank statements and other required records led to the Tribunal upholding the Respondent's assessments for undeclared sales invoices and input-output variances, except for errors in diaper weights and washing powder pricing.
  • The Tribunal emphasized adherence to statutory record-keeping obligations under Sections 43 and 54A of the VAT and Income Tax Acts, noting the Appellant's failure to maintain and present necessary records (e.g., bank statements, customs documentation) to support its tax position. This procedural requirement influenced the outcome on unsupported purchases and capital allowances.

Cited Statute

  • Section 54A of the Income Tax Act
  • Section 43 of the VAT Act
  • Section 5 of the Kenya Revenue Authority Act
  • Section 30 of the Tax Appeals Tribunal Act
  • Section 56 of the Tax Procedures Act
  • Second Schedule of the Income Tax Act
  • Section 15 of the Income Tax Act
  • Section 17 of the VAT Act

Judge Name

  • Rodney O. Oluo
  • Abraham K. Kiprotich
  • Gloria A. Ogaga

Passage Text

  • The Tribunal finds that the Appellant sufficiently demonstrated that it exported the production machines to a buyer in Nigeria at the price of Kshs. 18,681,230.00 as shown in the Appellant's workings presented to and acknowledged as received by the Respondent and the commercial invoices that were presented with the proof of export of the machine.
  • The Tribunal finds that the Respondent was justified in establishing that the input-output variances were undeclared sales in the years 2019, 2020, 2021 and 2022 and assessing VAT on the variances, save for the errors in computation arising from incorrect weights of diapers and incorrect price per kilogram of washing powder.
  • The Tribunal finds that the Appeal partially succeeds and proceeds to make the following Orders: the Corporation tax assessments on unsupported purchases in the years 2019, 2020 and 2021 be and are hereby set aside; the Corporation tax assessments on undeclared sales invoices of Kshs. 54,245,517.79 in the years 2019, 2020 and 2021 be and are hereby upheld; the Corporation tax assessments on the input-output analysis variances be recalculated by applying the correct weights of diapers and the correct price per kilogram of washing powder.